The roofer spiffying up my Connecticut abode should be done in a day or two, then I’ll see him again, uhm, never? Roofing seems like a tough business. Always hustling for completely new customers because the repeat cycle is a few decades.
In contrast, you can probably point to multiple clients who have engaged your consulting firm repeatedly over the past couple of years. Plus, you can work when it’s raining.
Your long-term clients are testimony to work well done. But is there such a thing as too much repeat business?
Roofers are better known for three-tab shingles than for three-layer cakes; however, cake is tastier, so let’s divide your consulting firm’s clients into three layers:
Past – Clients who have hired your consulting firm previously, but with whom you’re not currently engaged.
Repeat – Current clients engaging your consulting firm again, after having worked with you previously.
New – Current clients engaging your consulting firm for the first-time.
Now, let’s look at the optimal mix of your consulting firm’s annual revenue by type of client:
|Type of Client||% of Revenue|
|Past||0 – 50%|
|Repeat||40 – 80%|
|New||10 – 60%|
(Before we go any further, here’s the answer to the question you were just about to ask in the comments section: Client organizations count as a whole, regardless of the number of buyers within them. Different buyers within the same organization don’t count as different clients for this exercise.)
You can see that there are two problem areas: 1) when Repeat clients fall below 40%, and 2) when New clients fall below 10%.
Let’s address the more obvious problem: you don’t want your Repeat revenue to fall below 40% because you don’t want a roofing business!
If your consulting firm has been in business for more than a couple of years and less than 40% of your revenue derives from Repeat clients, check the following:
- Have you designed your projects so that follow-on projects are obvious?
- Do your projects incorporate a long tail so that you can build enduring, long-term relationships?
- Do you have a good process for surfacing and winning follow-on projects?
- Are your clients delighted with your work?
What about the less obvious problem area: Why should you care if your revenue from New clients falls below 10%?
- New clients provide an opportunity for your consulting firm to experiment with pricing, approaches and products. It’s tough to ratchet up your fees with a Repeat or Past client, but a new client has no history hampering you.
- For you to meaningfully grow your consulting practice, you must win New clients. Even if you have significant expansion opportunity within your current clients, you typically need more logos on your clients page to enjoy a leap in revenue.
- If you’re building a boutique consulting firm, your market value will increase if the mix of New clients stays above 10%. Buyers want to see that you have a proven, reliable process for winning clients. Hence, a steady inflow of New clients will increase your multiplier.
What should you do if more than 90% of your revenue comes from Repeat and Past clients combined (i.e., under 10% from New clients)?
If you’re not operating at full capacity, then you need to stoke your business development engine. (Plenty of tips in this book.)
On the other hand, if adding more business from New clients would overwhelm your consulting firm’s delivery capacity, then it’s time to gracefully fire some of your current clients and decline repeat engagements. Candidates for dismissal include:
- Clients that you don’t like;
- Clients that are low profitability;
- Clients that engage you for work outside your strategic direction.
When you say goodbye to these clients, you clear space for better clients to appear.
Do you have a repeat client you’d happily give up to make room for New business?
Text and images are © 2018 David A. Fields, all rights reserved.